Canadian Natural Resources: Oil Sands Sector Winner
June 28th, 2011 | by Alexander Zepps |The stock of 
(CNQ) pushed substantially higher this winter, clearing major psychological resistance at $50, before pulling back in healthy-correction fashion.
Further, given the better than 50% gain, if you bought Canadian Natural Resources when first discussed here at the split-adjusted price of $31.80 on May 24, 2010, now may be a good time to consider taking some profits off the table with CNQ.
However, those who can tolerate the risk could maintain their full position and go for an even larger gain, as CNQ remains well-positioned in an energy-hungry world. Canadian Natural features balanced, low-risk assets, complemented by an oil sands production base.
Canadian Natural’s biggest project is its Horizon oil sands operation in the Athabasca oil sands region of Canada, and the company estimates that there are roughly 6 billion recoverable barrels available on its property.
Further, CNQ’s production should increase 10% to 12% to about 620,000 to 640,000 barrels per day of oil equivalent (bpde). Overall,’s CNQ energy production is 62% crude, 38% natural gas, with 94% of its production in G-8 countries.
To be sure, one key risk with CNQ concerns the price of oil, particularly important given oil sands’ higher extraction cost. But almost from the end of the financial crisis’ acute stage in early 2008, the oil price trend has been CNQ’s friend: oil traded in a $60-80 per barrel range for about 18 months, before clearing $80 in late December; currently, oil is above $105.
The Thomson Reuters First Call FY011/FY2012 EPS estimates for CNQ are $2.47 to $3.52, and each looks about 5% low, according to my analysis.
2011 Outlook: I view Canadian Natural as a long-term play, but if you’re looking to sell CNQ within the year, it’s probably best to take your profits after it rises to $53-54, if it fails to rise above $55.
Stock Analysis:I consider Canadian Natural Resources to be a moderate-risk stock. If an investor has already purchased the company’s shares, I’d hold them. If not, I’d consider buying a 50% position in CNQ now; I’d put a sell/stop loss at $32.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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